Confusion in Michigan tax code still reigns

Two bills designed to start reining in what some say has been unfair and overzealous tax assessing were unanimously passed by the Michigan House this week. The target of the legislation is the State Department of Treasury.

“Under Jennifer Granholm the Department of Treasury became very, very aggressive in its efforts to squeeze additional revenue from businesses,” said Tricia Kinley, director of tax policy for the Michigan Chamber of Commerce. “We strongly support both of these pieces of legislation.”

House Bill 5543 limits how far back Treasury's auditors could go into previous tax years to search for additional dollars taxpayers allegedly failed to report under the use tax. The bill does this by clarifying when a tax filing is considered to have been completed. House Bill 5543 was passed by the House on Thursday on a 109-0 vote.

“I think we need a tax system that's simple, fair and efficient,” said, Rep Al Pscholka, R-Stevensville, the sponsor of the bill. “What we're seeing, however, is that we still have a ways to go.”

Jorge Hensal, a Macomb County resident who owned a business that made steel stairs and railings, testified on House Bill 5543 when it was in committee. After losing a contract to an Ohio company that under bid him, Hensal closed down the business in early January.

“As we were doing this, an auditor called,” Hensal told Capitol Confidential. “He seemed friendly. We met and talked and he asked a few general questions. But when he called back he said he had good news and bad news. He said we'd overpaid about $30,000 in sales tax but owed about $180,000 in use tax.”

According to Hensal, it seemed to him that the auditor had come up with the $180,000 figure by simply computing 6 percent of his company's gross sales.

“I ended up reading the tax code and saw there were actually seven different ways I'd been selling my products,” Hensal said. “For instance, when I sold to a nonprofit, it was different than when selling to someone else. I showed it to the auditor, he took it and later came back and said I was right. I felt like asking him why an architect, like myself, with no training in taxes could come up with that, when nobody else had?” Hensal said.

According to Hensal, the Treasury still claims he owes $180,000, but now $40,000 of that amount is for penalties.

“My CPA made a mistake,” Hensal said. “For 10 years he had not filled out my tax form correctly. He classified everything under 'industrial process.' But I really can't bad mouth him too much because you can't find out what he was supposed to do in the code — it's all an interpretation.”

The other thing Hensal and his CPA found out was that they opened the door to the audit of the company's previous 10 years of returns by leaving blank spaces on the forms where no payment was due instead of actually putting in zeroes.

“I guess that's sort of an unwritten law,” Hensal said.

House Bill 5543 would clarify what constitutes a filing. Under law, this would limit how long the filing could still be a target for further audits. The bill makes the clarification by adding the following technical wording to current statute:

The filing of a return includes the filing of a combined, consolidated, or composite return whether any tax was paid and whether the taxpayer included any amount in the tax line including zero.

The other bill pertaining to Treasury's ability to assess additional taxes is House Bill 5577. It was also passed by the House on a 109-0 vote. This legislation would limit the time frame regarding certain unclaimed property.

Treasury spokesman Terry Stanton said that his department is just doing its job.

“Obviously, we administer the laws on the books,” Stanton said. “Our job is administering state law. That's what we do. In addition, we support both of these House bills.”

But according to Kinley, she doesn't believe either bill would be necessary if Treasury wasn't being overly aggressive.

“Granholm started this train rolling,” Kinley said. “And what we're seeing here is really just the tip of the iceberg.”

Capitol Confidentialasked Kinley why the current Treasury Department has continued the practices that were used under Gov. Granholm.

“All I can say is that I think just asking that question pretty much hits the nail on the head,” Kinley responded.

House Bill 5524, the so-called anti-bounty hunter bill, has yet to come out of committee. That legislation would prohibit Treasury from paying auditors on a contingency fee basis. Some observers believe House Bill 5524 would end most of the alleged “overzealous” tax assessing.